Why You Shouldn’t Miss This October’s NFP Release

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The star of this week’s economic calendar is the release of US Non-Farm Payrolls (NFP), which is expected at 8:30 EST (14:30 CET). Let’s not forget that NFP is a nickname for a load of monthly US employment data that is all released at the same time. Here are some things to consider in the lead-up to the event.

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Non-Farm Payrolls

What’s going to get the most attention is, as might expect from the name, the NFP figure itself. This represents the total number of jobs created by the economy in the prior month, excluding the farming related ones (because they are highly seasonal), as well as non-profit and government jobs. Therefore, it’s a good reading of job creation in response to the underlying real economy.

There are two important considerations when analyzing this data: the first is that increasing employment is a sign of economic strength and that employers are expecting increased consumer demand, and are expanding their workforce to meet it. This would be seen as supportive of the Dollar. The second aspect is that increasing employment means more demand pressure, which could lead to higher inflation and concerns that the economy is “overheating.” This, in turn, leads to two further issues: increasing inflation implies the Dollar is getting weaker, but it also means that the Fed is more likely to intervene by raising rates and strengthening the Dollar.

Aside from the headline number, there are revisions to prior months – and that can move the market if the top number comes in line with expectations, and especially if the revision is significantly beyond expectations. The release last month (which covered August) came in above expectations but was tempered by a downward revision to the prior month (it was initially reported at 157K, and that was revised down to 147K – about the same amount as the headline number beat expectations).

Of late, the consensus for NFP is that “normal” is around ~180-200K.  Numbers significantly above 200K are seen as “very good,” and numbers below 180 as “unexpectedly negative” – leading to the expectation of market moves accordingly. The expectation for the October release (which covers the month of September) is 185K, compared to 201K for the prior month. Also, the number is likely to be affected by Hurricane Florence (which caused an estimated $38B in damages).

Up until recently, ADP numbers were seen as predictable of the NFP number, that that has somewhat diminished lately. Even so, some traders might reference that the figure came in at 185K, and miss from the 193K forecast. This is in line with the current consensus.

nfp october release

Average Hourly Earnings

The second most crucial event measures how much private non-farm workers are paid, and is seen primarily as a guide for inflation and the tightness in the labor market. The Fed closely follows it since it relates to their dual mandate.

Average hourly wages are expected to have increased by 2.8%, compared to +2.9% last month. As discussed previously, a higher number indicates a risk of inflation that could signal Dollar weakness, but too much could be a sign that the Fed will intervene and be supportive of the Dollar.

Unemployment rate

The unemployment rate typically doesn’t get as much attention by the markets as it does from the media and in popular discourse. But, if all other indicators come in line, and there is a major upset, it could still lead to some market movement. The rate is again expected to drop to 3.8% from 3.9% (which is the same from last month).

It should be noted that often the components of this data get more attention than the headline number. Some see the underemployment rate as more relevant, as well as the labor force participation rate. Some of these components can explain unexpected moves in the other data, such as an increase in labor force participation might explain and surprising increase in unemployment. The analysis of this data is usually done by humans and can tell why the market might go one way initially as also respond to the numbers, and later are corrected as the data is processed.

The market moves

There is a lot of data coming out at once, and it can take some time for the market to adjust to it all. This leads to sometimes quite a bit of volatility, especially when there are significant misses, or some data points contradict others (a beat in NFP number, for example, accompanied by an uptick in unemployment). The extra volatility will usually subside after a few minutes, after which the market will take on the trend from the data.

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